The firms found significant levels of asset depreciation and investor redemptions that persisted into 2009 have given way and U.S. investment management firms are showing signs of recovery in both overall company performance and compensation levels.
Although the global market crisis reduced average compensation levels throughout the asset management industry, investment professionals at hedge funds experienced by far the largest declines, according to a press release. Compensation figures reported by study participants show that as markets imploded in 2007–2008, average total compensation for senior hedge fund fixed-income investment professionals declined more than 40%, only to rebound by about the same amount from 2008–2009. At $1.1 million, projected 2010 average total compensation for senior fixed-income professionals at hedge funds exceeds pre-crisis levels.
Average reported compensation for senior hedge fund equity professionals declined 44% from 2007–2008 and then fell another 15% from 2008–2009. Total compensation for these professionals is projected to increase by 8% in 2010 to $875,000.
Equity and fixed-income professionals at traditional asset management firms have experienced far less volatility in compensation levels, the press release said. Average compensation levels among senior fixed-income professionals at traditional funds and advisers declined by about 5% from 2007–2008 and then jumped 53% from 2008–2009. Those levels are projected to increase approximately 10% to $525,000 in 2010.
Average compensation among senior equity professionals at traditional funds and advisers actually increased 34% from 2007–2008 and then held steady from 2008–2009. These levels are projected to increase 12% to $950,000 in 2010.
The expanding influence of the Chief Investment Officer (CIO) position within many asset management organizations is reflected in the growing disparity in total compensation between CIOs and other investment professionals. Average 2009 total compensation for CIOs in equities was approximately $1.8 million, compared to $825,000 for equity portfolio managers, $540,000 for directors of research and $320,000 for analysts. In fixed income, CIOs earned approximately $850,000 on average compared to a range of $340,000–$525,000 for other investment professionals.
In 2009, bonuses accounted for approximately 70% of cash compensation among equity portfolio managers and 50-60% among equity analysts and traders, with the remainder salary. For fixed-income portfolio managers, salary makes up a bigger portion of cash compensation. Bonuses for fixed-income investment professionals ranged from approximately 65% for traders and 55% for portfolio managers to roughly 25% for analysts.
Although most asset management organizations are moving in line with other financial service companies by altering compensation structures in favor of long-term incentives, these changes have yet to be reflected in the actual compensation packages reported by asset management professionals, the review found. Outside of senior positions such as CIO, cash salary and bonus continue to be perceived as the most significant portion of asset management compensation.Beyond 2010, the consultants at Greenwich Associates and Johnson Associates project a significant expansion in the use of deferred/long-term incentives by asset management firms. This growth will in all likelihood come at the expense of bonuses, which are expected to decline as a share of overall compensation while both deferred/long-term compensation and cash compensation increase.